Price of Gold Fundamental Daily Forecast – Fed Rate Hike Priced In, Pace of Future Rate Hikes Will Move Gold Prices

Gold prices are trading lower shortly before the U.S. opening and the release of the Fed interest rate decision, monetary policy statement and economic projections at 1800 GMT.

At 830 GMT, August Comex Gold futures are trading $1296.70, down $2.70 or -0.20%.

On Tuesday, gold traders showed a somewhat bearish response to the outcome of the summit between the United States and North Korea, and the U.S. Consumer Inflation report that came in as expected.

Forecast

Today’s reports include Producer Inflation and Core Producer Inflation, which are expected to come in at 0.3% and 0.2%, respectively, however, the news that will drive the price action will be the Federal Open Market Committee Statement, Economic Projections and any surprises from the press conference.

The interest rate hike is nearly a done deal according to the CME Fed Funds Indicator. It clearly shows that investors believe the Fed will increase its benchmark interest rate by 25 basis points. However, the price action in gold will be driven by the language in the monetary policy statement, the economic projections and by any major comments from the news conference.

At issue is whether the central bank will raise interest rates this year one or two more times after June. Investors will be looking very closely at the Fed statements to see if there’s any forward guidance that will indicate the number and pace of future rate hikes.

Essentially, a hawkish Fed should drive Treasury yields higher, which would make the dollar a more attractive investment. A stronger U.S. Dollar should then put pressure on dollar-denominated assets like gold.

If there is no reaction in gold to the Fed then this will indicate the news was already priced into the market. This will also shift the focus to the European Central Bank (ECB) which meets on Tuesday. It could trigger a move in gold if it announces its intentions to start unwinding its massive bond purchasing program.

The Bank of Japan will meet on Thursday and Friday to decide monetary policy.

Basically, a hawkish Fed will be bearish for gold prices, a dovish Fed should underpin the market. The headline rate hike has already been priced into gold. It’s the future projections that will move the market.